PARIS, April 25 (Reuters) - European shares fell on Friday as new signs of violence in Ukraine weighed on stock markets that had recently been buoyed by corporate takeover activity.

Ukrainian forces killed up to five pro-Moscow rebels on Thursday and Russia launched army drills near the border in response. Seven people were also injured overnight at a pro-Ukrainian checkpoint near Ukraine's Black Sea port of Odessa when an explosive device blew up.

Ukrainian Prime Minister Arseny Yatseniuk accused Russia of wanting to start World War Three by occupying Ukraine "militarily and politically", in some of the strongest language he has used.

Steen Jakobsen, Saxo Bank's chief investment officer and chief economist, warned that investors have been complacent about the crisis in Ukraine, ignoring the risks of escalation.

"The market seems willing to give the diplomatic route all chances despite the obvious violations by both parties. Overall the situation is escalating by the hour, meanwhile investors are mostly focusing instead on the Fed's tapering and the ECB's quantitative easing," he said.

"The weekend could bring a reality check as the risk of further violence is high and could potentially upset the market's 'stability'."

Germany's DAX index, seen as the European market most vulnerable to the crisis between Ukraine and Russia, was down 0.8 percent, at 9,473.90 points.

The DAX, which has been outperforming European stock indexes for years, is down 1 percent so far this year, trailing behind France's CAC 40, up 3.9 percent in 2014, Milan's FTSE MIB up 14 percent and Madrid's IBEX up 4.5 percent.

"I'm a seller here. The DAX has got the legs to come off down to 9,250 points," said Darren Courtney-Cook, head of trading at Central Markets Investments Management.

Deutsche Bank featured among the biggest blue-chip losers, down 2.1 percent, hurt by a report saying the lender is considering whether to raise as much as 5 billion euros ($6.91 billion) in capital this year to cope with European stress tests and new capital rules.

Bucking the trend, shares in Gucci's parent Kering surged 4.2 percent after the company said sales trend for the luxury brand were improving.

The pan-European FTSEurofirst 300 index, which hit a near 6-year high earlier this month, was down 0.4 percent at 1,338.24 points on Friday.